Supreme Court Observations: Lexmark Int’l v. Static Control Components

Villafranco_John_web Lynch_Michael_web Garcia_Paul_webGuest Commentary

by John E. Villafranco, Michael C. Lynch, and Paul R. Garcia, Kelley Drye & Warren LLP*

(Ed. Note: Villafranco and Lynch authored an October 2013 WLF Legal Opinion Letter previewing the Lexmark case which can be accessed here)

On March 25, 2014, a unanimous Supreme Court in Lexmark Int’l, Inc. v. Static Control Components, Inc. ruled that a manufacturer of components for use in refurbished toner cartridges has standing under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), to sue the maker of printers in which the cartridges could be used for false advertising. Static Control Components, Inc., the component manufacturer, alleged that Lexmark International, Inc., the printer company, falsely told consumers that they could not lawfully purchase replacement cartridges made by anyone other than Lexmark, and falsely told companies in the toner cartridge remanufacturing business that it was illegal to use Static Control’s components.

The question before the Court was not whether Static Controls has constitutional standing under Article III, but whether it has so-called “prudential standing.” The Court initially noted that “prudential standing” is a misnomer, and that the real question “is whether Static Control falls within the class of plaintiffs whom Congress authorized to sue under § 1125(a).” Slip Op. 8-9. If it does, a court “cannot limit a cause of action that Congress has created because ‘prudence’ dictates.” Slip Op. 9. Rejecting the various approaches of the lower courts—from the competitor-only test, to antitrust standing, to the reasonable interest inquiry—the Supreme Court instead adopted a two-party inquiry.

Continue reading

Proposed Use of Tax Code to “Protect” Food Consumers Is Bad Policy and Unconstitutional

EnglishChip_lowGuest Commentary

by Chip English, Davis Wright Tremain LLP

Childhood obesity is a substantial problem worthy of serious discussion.  Unfortunately, legislators also appear to see it as an issue worthy of unsound and unconstitutional legislative action.  On July 25, 2013, Representative DeLauro, together with Representatives Lee, Defazio, Clay and Grijalva, introduced the most recent example of this food police problem.   H.R. 2831 would “deny any [IRS tax] deduction for marketing directed at children to promote the consumption of food of poor nutritional quality.”  The proposed legislation is both vague and overbroad and, more importantly, is an unconstitutional content, speaker, and audience targeted “tax on knowledge.”  H.R. 2831 cannot withstand First Amendment scrutiny.  Moreover, the proposal raises equal protection and arbitrary and capricious government action issues because government Speech Police would determine which marketing is “directed at children” and which food is of “poor nutritional quality.”

HR 2831 would amend the Internal Revenue Code to deny a broad array of travel, goods or services, gifts and other promotional expense deductions associated with “marketing directed to children” (persons under the age of 18)  of “poor nutritional quality” foods.  The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, would determine which foods are of poor nutritional quality by considering which foods are “inconsistent with the most recent Dietary Guidelines for Americans under section 301 of the National Nutrition Monitoring and Related Research Act of 1990 (7 U.S.C. § 5341).”  Leaving aside the policy question of whether the IRS, which is still dealing with determinations of which organizations qualify for charitable organization status, should be involved in determining which foods are of poor nutritional quality, government determinations of what marketing is “directed at children” and what food products are “inconsistent” with Dietary “Guidelines”, will inevitably be arbitrary and capricious because those terms are vague and ambiguous. Continue reading

Former NCAA Athletes Still “In The Game” As Court Finds No First Amendment Immunity For EA Sports

EA SportsCross-posted at WLF’s Forbes.com contributor page

A little over three years ago, in For Video Gaming Likenesses, If “You’re in the Game,” Are Your Rights Being Violated?, we highlighted an interesting lawsuit in California federal court in which former collegiate athletes were suing EA Sports. Last week, the U.S. Court of Appeals for the Ninth Circuit ruled on the appeal by EA Sports, affirming that the First Amendment does not protect it from liability for violating athletes’ “right of publicity” (In Re: NCAA Student-Athlete Name & Likeness Litigation).

The Lawsuit. The athletes alleged that EA Sports’s use of their images in NCAA football and basketball video games without permission violated California statutory and common law rights. EA Sports countered that the First Amendment protected them from liability, and moved to dismiss the class action as an unlawful strategic lawsuit against public participation (SLAPP). The trial court ruled that because the NCAA basketball and football video games failed to transform either the players themselves or the settings and circumstances through which they achieved their notoriety, EA Sports could not assert a First Amendment defense.

A wide spectrum of professional and business interests, understanding the potential impact of the Ninth Circuit’s decision, participated as amicus curiae. Professional sports unions, TV and movie studios, online gossip sites, and comic book and newspaper publishers contributed their views. Continue reading

Another Grocery Basket Full of Lawsuit Claims for The Food Court

Heading to The Food Court?

Heading to The Food Court?

Cross-posted at WLF’s Forbes.com contributor page

Gum, crackers, granola, fruit punch, cheese, nuts and nut mixes, lemonade, stuffing mix, gelatin, easy bake mac-and-cheese.

A good day’s shopping for most, but for some, such as California resident Susan Ivie, this basket full of goods represents a lawsuit in the making. Ms. Ivie purchased these products, produced by Kraft Foods, Cadbury, and Back to Nature, over a four-year period. Upon discovering that those companies had, in her opinion, duped her into making those purchases through false or misleading statements, Ms. Ivie contacted some lawyers, and volunteered to be the lead plaintiff in a class action lawsuit.

Well, we’re not sure if Ivie v. Kraft Foods Global et. al actually came about that way, but a recent decision in the suit provides us another opportunity to opine about the proliferation of food labeling lawsuits and the preferred venue for these claims: The Food Court (aka the U.S. District Court for the Northern District of California). To learn more about this litigation trend and why the Northern District is so popular, read a recent story from The Recorder, coincidentally called “Welcome to Food Court“, or read our numerous past posts which use that moniker.

State-level enforcement of federal labeling rules. Ivie pleads her case under, among other laws, California’s “Sherman Laws.” Those laws explicitly adopt all federal food labeling laws and regulations. This tactic allows plaintiffs, and federal judges, to do what federal law explicitly reserves to the FDA — interpret and enforce food labeling rules. Defendants, such as Kraft, Cadbury, and Back to Nature, have tried to get such claims dismissed by arguing the “primary jurisdiction doctrine” and federal preemption. In Ivie, Judge Ronald Whyte went through Ms. Ivie’s shopping cart, item by item, and examined the defendants’ arguments. Continue reading

Expert Speakers at WLF Program Address Promise and Perils of FTC “Green Guides”

ecofriendlyAt a February 21 WLF Web Seminar, Sustainable “Green Advertising”: Implications of FTC’s Guidelines for Public, Private, and Self-Regulation, two private attorneys and a forestry trade association environmental expert offered a revealing tour through the provisions and pitfalls of the Federal Trade Commission’s (FTC) guidelines for “green advertising.” The Commission issued the third edition of its “Green Guides” in October 2012.  The Guides inform FTC’s use of its “unfair advertising” authority under Section 5 of the FTC Act and are also specifically incorporated by reference in numerous state consumer protection acts, most prominently California’s.

The presenters at this hour-long program, which can be viewed for free by clicking the title above, were Crowell & Moring partner Christopher Cole and associate Natalia Medley, along with American Forest & Paper Association Senior Director of Energy and Environmental Policy Jerry Schwartz.

The speakers organized their remarks with a Powerpoint presentation, which is available visually to those who view the program.  The slide deck is also available here.

Some of the interesting insights that you will hear from our speakers include:

  • Products which may meet the thresholds required under federal environmental regulations to qualify as “non-toxic” may not be marketed as such under the Green Guides if trace amounts of toxic materials are present.
  • The marketing of products as “non-toxic” or “free of” certain substances will likely be two of the most challenged practices under the guides.  Those challenges will most likely be brought by companies against other companies, especially larger companies vs. smaller companies.
  • The concept of “recycled content” was one of the most hotly contested during debate and discussion leading to the finalization of the Guides.  For instance, textile and paper companies which utilize scraps of materials generated from production in further production cannot claim such products were made with “recycled content” because in the FTC’s mind, such usage is a routine industry practice.
  • Class action plaintiffs’ lawyers might use the Green Guides as a baseline for filing private shareholder class action lawsuits challenging public companies’ “sustainability reports”.

Do Plaintiffs Have Standing to Bring a Consumer Class Action Including Claims for Products They Didn’t Purchase?

nblazer-21Guest Commentary

by Natalie Blazer, Weil, Gotshal & Manges LLP*

*Cross-posted with permission from Weil’s Product Liability Monitor

At the Product Liability Monitor, we have kept our eye on an emerging trend in product liability lawsuits: consumers seeking to bring claims based on items they never bought. As my Weil, Gotshal & Manges colleague recently reported there, courts have often had to decide this issue when faced with putative class actions. In Miller v. Ghirardelli Chocolate Company, N.D. Cal., no. 12-04936, Dec. 7, 2012, the Northern District of California adopted the reasoning of a majority of courts in its jurisdiction that have held that plaintiffs may have standing to assert claims for unnamed class members based on products they did not actually purchase, but only if the products and the alleged misrepresentations are “substantially similar.”

In Ghirardelli, the plaintiff’s central claim was that the packaging of the product he purchased, as well as that of four other products he did not purchase, contained several actionable misrepresentations. After considering the similarities and differences between all five of the products, the court concluded that while the “products have some similarities in packaging, composition, and labeling,” the products are inherently different from one another, have different target customers, and have substantial labeling differences. Thus, the plaintiff did not have standing to bring claims relating to the dissimilar products he did not purchase.

Just three weeks later, the Northern District of California ruled the other way on standing in Colucci v. ZonePerfect Nutrition Co., N.D. Cal., No. 12-2907, Dec. 28, 2012. In that case, plaintiff Kimberly Sethavanish purchased only one flavor of ZonePerfect bars, but had standing to challenge the labeling of the other 19 varieties as well because the court found that the bars are similar enough to one another. Sethavanish and her fiance James Colucci, for whom she bought the bars, sued ZonePerfect, alleging the company deceptively labeled the bars as “All-Natural,” even though all the varieties contained at least one of 10 allegedly non-natural ingredients. Continue reading

From the Waning Days of 2012, Five Developments You May Have Missed

dec12Before fully moving forward into 2013, The Legal Pulse offers five late December developments our readers may have missed during the holiday season:

1. Administration’s Regulatory Plan Released.  The federal government waited until late December to release its Spring 2012 Unified Agenda of Regulatory and Deregulatory Actions. This is the list of regulatory plans that the Office of Information and Regulatory Affairs at the Office of Management and Budget requires all federal agencies to submit to it by April of each year. As noted by the House Oversight Committee, the Unified Agenda has traditionally been issued between April and July. We’re in the process of reviewing it, but one item from the EPA’s priorities list jumped off the screen: “Expanding the Conversation on Environmentalism and Working for Environmental Justice.” We’ve consistently raised red flags about environmental justice here at The Legal Pulse, and will keep an even closer eye on that going forward.

2. FTC Issues Report on “Child-Directed” Food Advertising. What a difference a year makes. At the end of 2011, we were still talking about the threat posed to free speech and freedom of choice by the Interagency Working Group’s (IWG)  Nutrition Principles to Guide Industry Self-Regulatory Efforts. As that Legal Pulse post explained, Congress all-but terminated that effort by requiring a cost-benefit analysis. Last March, FTC Chairman Leibowitz told a congressional panel that it was “time to move on” from the IWG “self-regulatory” effort.On December 21, the Commission released what it termed a “follow-up” study on food ads directed at children. FTC’s study credited the food industry for expanding its self-regulatory efforts, but remained critical of the amount of money devoted to advertising foods the FTC deemed less-than-nutritious. The study has one major flaw: it is based on data that is three years old. It’s fair to say that a significant amount of improvement in the nutritional value of foods has occurred in those three years. Continue reading

SCOTUS’s IMS Health Ruling Should Change 4th Circuit’s Mind on Alcohol Ad Ban

4th Circuit

Cross-posted at WLF’s Forbes.com Contributor Page

Virginia’s controversial ban against alcohol advertisements in college newspapers is back before the U.S. Court of Appeals for the Fourth Circuit (Educational Media Co. at Va. Tech, Inc. v. Insley).  Back in 2010, that court reversed a district court’s order overturning the ban for failing the third prong of Central Hudson—the “directly and materially advances” prong.  In the view of the Fourth Circuit, the mere “common sense” connection between advertising and demand was sufficient for Virginia to ban alcohol advertising in college newspapers to further its interest in combating underage drinking.

That ruling involved only a facial challenge.  The next phase of litigation involves an as-applied challenge and a claim that Virginia’s ban discriminates against a narrow segment of the media (both unsuccessful below), which are back before the appeals court.  But as WLF argues in its amicus brief to the 4th Circuit, a lot has changed for commercial speech jurisprudence since 2010—most notably, the Supreme Court’s decision in Sorrell v. IMS Health Inc.

In Sorrell, the Supreme Court overturned a Vermont law that prohibited the dissemination of certain prescriber-identifying information for pharmaceutical marketing purposes.  In overturning that law, Sorrell made clear that where a law restricts truthful, non-misleading commercial speech on the basis of its content and the identity of its speaker, that law must be subjected to “heightened judicial scrutiny.”  Sorrell also made clear that content- and speaker-based restrictions on commercial speech will fail such heightened scrutiny in the ordinary case. Continue reading

Federal Court Rulings Reflect a “Commercial Speech” Doctrine in Need of Recalibration

Cross-posted at Forbes.com on WLF’s contributor site

In the past month, two different federal circuits held that Seattle’s Yellow Pages are noncommercial speech (Dex Media West v. Seattle) and a Texas trial lawyer’s website address is (probably) commercial speech (Gibson v. Tex. Dept. of Ins.). These divergent rulings, and the differing level of First Amendment protection they impose, reinforce Washington Legal Foundation’s long-held opinion that the U.S. Supreme Court must reconsider its “commercial speech doctrine.” Below, we offer some thoughts on a different approach.

Line Drawing. U.S. Supreme Court precedent requires judges to draw lines around speech when analyzing government restrictions. Court rulings in 1976 and 1980 determined that speech which does “no more than propose a commercial transaction” is entitled to less First Amendment protection than “pure” political speech. Some communications, such as advertisements, obviously fit on the “commercial” side of the line. But other speech isn’t so easily categorized, leading to needlessly convoluted judicial review which can silence or chill valuable speech.

What are the Yellow Pages? For instance, in Dex Media West, the Ninth Circuit had to categorize Seattle’s Yellow Pages, the distribution of which the city wanted to curtail for environmental reasons. Common sense may dictate that the Yellow Pages are quintessentially commercial. But the circuit court concluded that the existence of some noncommercial information – maps, individuals’ phone numbers, government office locations – in the Yellow Pages rendered the entire volume noncommercial. Continue reading

Update: Judge Rejects Settlement in Ben & Jerry’s “Natural” Class Action

Cross-posted at WLF’s Forbes.com contributor site

In our June 21 post, “Natural” Selection: Survival of the Litigious, we noted that consumer class action target Ben & Jerry’s decided to settle with the “deceived” plaintiffs once a judge on “The Food Court” (aka the U.S. District Court for the Northern District of California) denied their motion to dismiss. The plaintiffs in Astiana v. Ben & Jerry’s were claiming that because the company used cocoa processed with a synthetic ingredient, it couldn’t lawfully call its ice cream “all natural.”

We learned today (hat tip to Shook, Hardy & Bacon and its excellent Food & Beverage Litigation Update) that presiding Judge Hamilton rejected the settlement on September 12. Ruling from the bench, she found the proposed settlement legally unconscionable. The proposal had set up a $7.5 million fund for the plaintiffs. Under the cy pres doctrine, the court would distribute any amount remaining after plaintiffs had asserted their claims to “not-for-profit charities related to food or nutrition in the United States.” For themselves, the class action attorneys sought $1.8 million in fees.

According to an attorney present at the September 12 hearing, Judge Hamilton stated that she had incomplete information on how the cy pres funds would be rewarded.  A Ninth Circuit ruling from last July, Dennis v. Kellogg Co. (see our post on that here) may have given Judge Hamilton pause.  The plaintiffs devoted a lengthy footnote (n. 6) in their proposed settlement explaining why their cy pres proposal was not disconnected from the misleading advertising claims, as the appeals court found in Kellogg (there, Kellogg products were to be donated to a food bank). Yesterday, both parties filed a motion with the judge seeking a status conference and noted that they had “new information” to share, so perhaps Ben & Jerry’s and the class action lawyers will provide specifics on the possible cy pres recipients.

Interestingly, one of the members of the nationwide class in Astiana, Illinois resident Colleen Tobin, not only filed an objection to the settlement but has filed her own nationwide class action against Ben & Jerry’s in a New Jersey federal court (Tobin v. Conopco and Ben & Jerry’s). She filed suit September 13, the day after Judge Hamilton rejected the Astiana settlement, alleging that Ben & Jerry’s ice cream was not all natural due to synthetic cocoa and because it contained genetically modified organisms. On September 21, Tobin filed a motion to transfer her suit to—you guessed it—the Northern District of California, where it seemingly could be consolidated with the Astiana class action. It remains unclear whether Ben & Jerry’s will contest the motion.

We will keep an eye on this case to see if it enters The Food Court, and if so, what impact it will have on the settlement of Astiana.